China Flexes Plex Muscle

2012-05-23 10:05:22 Chinese Films

As the exhibition biz hustles to keep up with the film biz's technological advancements, AMC Entertainment's new Chinese owner Wanda represents a deep-pocketed investor willing to help foot the bills for those upgrades.

But beyond in-theater improvements, the $2.6 billion deal announced Monday also provides a powerful sign of China's growing influence in Hollywood.

The acquisition of North America's second-biggest chain of movie houses would be the largest-ever purchase of a U.S. firm by a Chinese corporation - -- it's subject to U.S. regulatory approval, though no major hurdles are anticipated -- and by far the most significant step by a Chinese enterprise into the U.S. entertainment business. The acquisition includes about $2 billion in assumed debt.

"This acquisition will help make Wanda a truly global cinema owner, with theaters and technology that enhance the moviegoing experience for audiences in the world's two largest movie markets," Wang Jianlin, the billionaire founder of Wanda, said at a news conference Monday in Beijing.

For AMC, the buyout includes an infusion of up to $500 million, which means the company can expedite its renovation plans -- from dine-in theaters to MacGuffins bar concepts, digital conversions and laser projections. It also positions the company to move into the world of 48 frames-per-second projection, a commitment that the top U.S. exhib, Regal Entertainment Group, has already made.

The deal will involve no management changes; the h.q. will remain in Kansas City, Mo.; and the transaction is not projected to impact AMC's employment levels or business strategy.

AMC chief exec Gerry Lopez, who was in China on Monday meeting with Wanda executives, praised the ground-breaking pact. "As the film and exhibition business continues its global expansion, the time has never been more opportune to welcome the enthusiastic support of our new owners," he said.

Wanda had been talking to AMC for several years, but negotiations stepped up a notch as the real estate boom in China caused a steep rise in theaters and swelled Wanda's cash war chest for acquisitions. Last month, AMC also backed away from plans to go public, paving the way for takeover talks to continue.

The deal demonstrates marked confidence in the U.S. exhibition biz -- a big leap forward from a decade ago when financial fallout forced nearly a dozen chains to file for bankruptcy. Those that remained in business, like AMC, jumpstarted their consolidation efforts.

"The establishment of four or five major exhibition players gave the industry clout that didn't exist ten years ago," said Patrick Corcoran, director of media and research for the National Assn. of Theater Owners. "Now, with this broadening of exhibition into multi-nation players, you're going to see greater influence on cinema companies as they expand internationally."

Cinemark CEO Tim Warner added that the move could help further open China to outside films.

"With Wanda Group entering into the U.S. market, we think it is an opportunity for China, as a country, to remove the barriers of exhibition ownership and film quotas, opening up their markets to global competition," he said.

With the purchase of AMC, Wanda will overtake Regal as the largest exhib in terms of revenue, if not screen count. But Wanda is reportedly looking for a European cinema operator and other entertainment investments to further grow its holdings.

Ties between the U.S. and Chinese movie industries have been getting cozier since China agreed in February to open its market to more non-Chinese films, with DreamWorks Animation announcing a deal the same month to build a production studio in Shanghai.

Still, Wang said there would be no special treatment for Chinese movies when it comes to distribution in the U.S.

The Kansas City-based AMC operates 346 multiplexes mostly located in major U.S. and Canadian cities, with a total 5,034 screens. It is controlled by private-equity firms including Apollo Global Management, Carlyle Group, Bain Capital and Spectrum Equity Investors.

Wanda, based in Dalian in northeast China, owns 86 movie theaters in the country, with 730 screens, and has interests in production and distribution as well as numerous real estate and tourism holdings. Annual revenues are $16.7 billion, while it controls $35 billion in assets.

The generous pricetag for AMC put a glow around the value of other cinema stocks, which rose sharply Monday in the wake of the deal.

"It highlights that the exhibition industry is both more dynamic on technology and long-term relevant than Wall Street sometimes views it," said Matthew Harrigan of Wunderlich Securities.

Regal saw its shares close up 3.9% at $14.12 after hitting a high of $14.21 during the session. Carmike jumped 3.6% to $14.82 and Cinemark rose 1.79% to $23.30.

"The importance of the theaters to the studio ecosystem is clearer than ever. The DVD business is incredibly weak. Studios' reliance on the box office is probably higher now than it's been in a decade," said Tony Wible of Janney Montgomery Scott.

Marla Backer of Hudson Square Research called the deal "blow-your-mind amazing."